A proposed natural gas pipeline in British Columbia is facing delays after a court ruling that the National Energy Board must examine the issue of whether the project should be under provincial or federal jurisdiction.

TransCanada Corp.’s Prince Rupert Gas Transmission (PRGT) line would move natural gas from northeast B.C. to a planned plant on the West Coast that would turn the commodity into liquefied natural gas.

The Federal Court of Appeal ordered the NEB to take another look at arguments from Mike Sawyer, a Smithers, B.C., environmentalist who is opposed to both the proposed pipeline and Pacific NorthWest LNG’s plans for a liquefaction terminal on Lelu Island in the Port of Prince Rupert.

Mr. Sawyer asked the NEB in 2015 to conduct a full hearing into the issue of whether the pipeline should be federal instead of provincial jurisdiction, but the board dismissed his request.

The route would go nearly 900 kilometres from northeast B.C. to northwest B.C. – traditionally the turf of the B.C. Environmental Assessment Office, which cleared the way for the province to issue an environmental assessment certificate to PRGT in late 2014.

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“The board did not ask itself whether an arguable case for federal jurisdiction had been made out,” Justice Donald Rennie said in his 28-page reasons for judgment of behalf of the Federal Court of Appeal. “It did not apply the required constitutional test of functional integration, and it assumed that a project that was different could not be functionally integrated as part of the undertaking as a whole.”

The Canadian Environmental Assessment Agency would scrutinize PRGT if the board were to decide that the matter should be examined at the federal level.

“The board is reviewing the court decision, and will consider next steps after doing so,” the NEB said Thursday.

Mr. Sawyer, the appellant in court, argues that the twist in the PRGT project is that natural gas would be converted to LNG for export to Asia – a more elaborate strategy than piping fuel for strictly domestic use.

“This shows that the NEB was too quick to dismiss a legitimate constitutional argument without a full hearing,” he said in a release. “I’m convinced that PRGT is just one part of a massive natural-gas export scheme that is clearly within federal jurisdiction and needs federal approval to proceed.”

TransCanada didn’t say Thursday whether it will appeal the court’s decision, but company spokesman Shawn Howard noted the company is pondering its options. “It is notable that this decision is not a determination that federal jurisdiction applies,” he said in a statement. “Instead, the court determined that the National Energy Board needs to reconsider their original decision about holding a hearing to determine whether federal jurisdiction applies. Accordingly, the court remitted the case back to the NEB for reconsideration.”

The B.C. Oil and Gas Commission granted approval in 2015 to TransCanada to build and operate the $5-billion pipeline. The Calgary-based company estimates that more than 780 kilometres of pipe would go over land and 110 kilometres across water.

Industry experts say Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, could decide in mid-2018 on whether to proceed with constructing an $11.4-billion terminal to supercool natural gas into liquid form.

The Federal Court of Appeal’s ruling pointed out natural gas reserves across Western Canada, saying the NEB “did not look at the role PRGT played in the exercise of moving gas from the Western Canadian Sedimentary Basin to export.”

Four months ago, TransCanada said it secured commercial support to build a portion of the North Montney pipeline in northeast B.C. without relying on LNG exports.